Negative office demand highlights SA’s challenge

Supply additions and negative demand have colluded over the six months to July 2016, resulting in an increase to CBD and Fringe office vacancy levels.

The Property Council of Australia’s latest Office Market Report has revealed an increase in Adelaide CBD vacancy levels from 14.1 to 15.8 per cent (highest since July 1999), while Fringe vacancy increased from 7.6 to 10.2 per cent (highest since January 1999). 

In the six months to July 2016 in the Adelaide CBD:

  • Premium Grade vacancy increased from 7.7 to 8.3% due to -245sqm of net absorption
  • A Grade increased from 12.8 to 15.9% due to 17,378sqm of supply and net absorption of -1,665sqm
  • Vacancy in the B Grade segment increased from 11.1 to 14.2% due to net absorption of -8,959sqm and 3,268sqm of supply additions
  • Withdrawals of 4,895sqm contributed to the C Grade vacancy decrease from 17.9 to 16.8%
  • D Grade vacancy decreased from 20.6 to 20.0% due to 2,924sqm of withdrawals

“The consequences of this latest data now means that only the Adelaide CBD Premium Grade segment is in single-digit vacancy territory,” said SA Executive Director Daniel Gannon. 

“A significant amount of space is due to come online throughout the 2016 financial year – 19,002sqm to be precise – and will be followed by 3,846sqm in 2017 and a further 12,500sqm of mooted space.

“This means that the single biggest challenge for Adelaide’s CBD office market – and the broader property sector – is one of demand.

“Chasing demand is a common story for this sector right now, and a challenge that we must continuously confront if South Australia is to pick itself up from the bottom of the unemployment table.

“That’s why the state’s biggest industry – accounting for 10.8% of GSP – has welcomed reforms to South Australia’s tax and planning settings in recent times, and lauded a ‘hard hats and steel caps’ approach to our state’s economic recovery.”

Mr Gannon said the three Australian markets with the country’s highest vacancy are all capital cities with Perth CBD (21.8%), Brisbane CBD (16.9%) and Adelaide CBD. 

“This means governments are right to adopt the Property Council’s focus on cities – they can drive innovation in the knowledge economy through urban infrastructure, which creates employment.”

Mr Gannon said Fringe vacancies increased overall in the six months to July 2016 due to negative demand and supply additions, with the A Grade segment recording a vacancy decrease over the period.  There is no space due to come online in the medium term after 2016.

Background information

Covering approximately 4,500 office buildings in more than 30 office markets around Australia, the Property Council of Australia’s Office Market Report captures total stock, vacancy, supply, withdrawals and net absorption, with a comprehensive list of future supply and development details.

Property is South Australia’s largest private sector employer and biggest industry, accounting for 10.8% of the state’s economic activity (or $10.5 billion).

It builds prosperity by paying $4.4 billion in wages and salaries – one in six people draw their wage directly or indirectly from property – and one million South Australians have a stake in property through their super funds.

Property is the largest single industry contributor paying 56.6% of state taxes, local government rates, fees and charges.

For more information or to purchase the July 2016 Office Market Report, click here.

Key office market indicators – CBD and Fringe

Key market indicators, Adelaide CBD (aggregate)

Grade

Vacancy, Jul 2016 (%)

Vacancy, Jan 2016 (%)

Difference (%)

Net absorption, 6 months to Jul 2016 (sqm)

Net absorption, 12 months to Jul 2016 (sqm)

Premium

8.3

7.7

0.6

-245

484

A

15.9

12.8

3.1

-1,665

-3,334

B

14.2

11.1

3.1

-8,959

-4,723

C

16.8

17.9

-1.1

4,520

2,216

D

20.0

20.6

-0.6

-1,473

-4,042

Total

15.8

14.1

1.7

-7,822

-9,399


Key market indicators, Adelaide Fringe (aggregate)

Grade

Vacancy, Jul 2016 (%)

Vacancy, Jan 2016 (%)

Difference (%)

Net absorption, 6 months to Jul 2016 (sqm)

Net absorption, 12 months to Jul 2016 (sqm)

A

2.1

5.6

-3.5

1,300

1,300

B

7.6

5.6

2.0

522

1,817

C

12.8

8.8

4.0

-6,393

-8,775

D

21.5

9.6

11.9

-850

-850

Total

10.2

7.6

2.6

-5,421

-6,508